Earnings Call: H2 2019

Feb 26, 2020

Good morning. Welcome to our 2019 Full Year Results Presentation. Perhaps I could ask you to turn to Slide 4. I'm going to give a short presentation on the progress the bank has made in 2019, after which our CFO, Eamon Crowley, will provide a more detailed review of our financial performance. And then Eamon and I will be happy to take your questions after that. Bank is reporting a profit before tax of €42,000,000 and an underlying profit of €74,000,000 The outturn represents a better quality of earnings, the ongoing strength of the franchise and our ability to compete in the Irish retail and SME markets. Indeed, with many of the legacy issues now behind us, management has a strong balance sheet foundation for developing the franchise. We have a clear management agenda and the emerging capability to compete strongly in the Irish Retail and SME market. In spite of significant headwinds, notably lower for longer interest rates, high RWA intensity and a lack of balance sheet scale. And a few tough choices in front of us, for example, around cost management and maintaining competitive mortgage pricing in front of our books. We are confident that we can align intrinsic value and market value over time for the benefit of our owners. A few further comments. The bank's net interest margin for 2019 is 180 basis points, showing an increase of 2 basis points on 2018. The bank continues to focus relentlessly on efficiency and effectiveness as a means of funding strategic investment. At a headline level, total operating expenses reduced by 1% in 2019. But that does not do justice to the circa €20,000,000 of underlying efficiency gains in the addressable cost base, which gave us the ability to reinvest back into both the business and its culture. Eamon will give you more color on this perspective in the CFO section. I'm pleased to say that business performance in 2019 has been strong, in particular in mortgage lending. We outperformed the market, grew total new mortgage lending by over 13% to £1,500,000,000 and thereby grew our mortgage market share to 15.5%. In addition, we continue to grow other lending lines, including term loans and SME. On a flow basis, we are making really good progress in building out a diversified income stream as per our commitment to investors. NPLs are circa €1,000,000,000 at the end of 2019 with an NPL ratio of 6.4%. NPLs have reduced by 38% from €1,700,000,000 And let's not forget, the NPL ratio was 10% at December 2018. We remain committed to a mid single digit target. The stock of properties in possession at the end of December 2019 is now circa 400. Indeed, progress on the sale of properties in possession has been strong with a total of more than 2,000 properties sold since 2017. We're happy to report that there were multiple rating upgrades received in 2019 with Standard and Poor's upgrading the bank to BBB- and Moody's to BAA2. The bank has now returned to investment grade with all its rating agencies, the first time since 2011. We report a pro form a CET1 capital ratio of 15% on a fully loaded basis, an increase of 100 basis points in 2019. Both CET1 and total capital ratios remain above regulatory requirements. The long term management CET1 target is 13%. In this regard, we confirm P2R remains at 3.45% and that the dividend restriction remains in place. Turning to Slide 5 for some detailed comments on financial performance. We saw the NIM increased by 2 basis points year on year from 178 basis points to 180 basis points, all driven by active balance sheet management. Operating expenses, excluding regulatory charges, of GBP 283,000,000 reduced by 1% year on year. This performance includes further progress in reducing underlying operational costs and reinvestment in the future of the business, including in business efficiency programs, digital transformation, new and redesigned branches and people development. As mentioned previously, Lehman will provide further insight into the management of the cost base. An impairment charge of £10,000,000 in 20.19 compares to a charge of £18,000,000 in 2018. The underlying loan book is performing well, reflecting the stability of the portfolio and the current macroeconomic environment. In terms of balance sheet resources, retail deposits, including current accounts, increased by circa 200,000,000 pounds Indeed, current account balances are the highest they have been in over a decade. The performing loan book, which stood at £15,300,000,000 shows an increase of £100,000,000 or 1% when compared to 31 December 2018. Where the strength of new lending has outpaced repayments for the first time again in a decade. Of course, it would be remiss of me not to reference the Tracker Mortgage Examination or TME. The TME and enforcement process have completed. We paid a fine of CHF 21,000,000 We apologize fully, and I'll do that again today. And I've concluded the work. Turning to Slide 6. We are an important part of the Irish retail and SME Banking landscape have proven this by continuing to grow new business across all customer lending segments. Total new lending grew by over 14% in 2019. Mortgage lending, which represents 89% of total new lending, increased by 13% compared to 2018, so the mortgage market grew by 10%. This is an impressive performance and shows the strength of PHSB's brand, the quality of the bank's propositions, the value of the multichannel approach and the passion, professionalism and commitment of my colleagues to deliver fair customer outcomes. Profitable growth has not been achieved at the expense of credit quality. Since 2012, we have focused much more on affordability as the key credit risk test as against underlying asset value. Indeed, for the vintages written since 2012, we have had minimal defaults and more than acceptable LTV. We have not changed our underwriting criteria and keep a watchful eye on book performance. While Swan cannot always legislate for a macroeconomic impact such as Brexit or a global financial crisis, we remain diligent and true to old fashioned lending principles. Data would suggest we have gained competitive advantage through proposition, people and service. Today, our mortgage application levels continue to grow despite the slight plateau in the second half of 'eighteen, which we've seen across the market. The mortgage market is expected to exceed GBP 10,000,000,000 in the medium term, which provides a positive backdrop for our business. While the market remains competitive, efficient distribution, anticipated pricing, coupled with a strong intermediate proposition, position us well for the future. Personal term lending grew by 15% year on year. The majority of our personal loan applications now originate through digital and voice channels. We have fully automated a personal term lending journey such that real time decisions, document upload and payout can all be fulfilled digitally, thereby eliminating the need for manual intervention. We have also fully automated the credit card application journey launched in August 2019, and our objective is to roll out this automated customer journey across more of the product range through 2020. SME lending was €47,000,000 in 20 19. SME lending has now grown 126% year on year, albeit from a low base. We are confident we can build a real market presence in the segments we choose to serve. The bank is clear that its governing objective is to maximize sustainable shareholder value. Our core belief is that by focusing our decision making and resource allocation on the single objective, we bring clarity to strategy development and capital and management time allocation. We only fund strategies that deliver this objective, thereby ensuring an alignment with the owners of the business. However, in doing so, we believe that we will bring value to other key stakeholder groups. We convert this so called rational purpose into a vision, to be the bank of choice and a brand purpose to deliver what our customers, colleagues and communities need to be successful. In summary, we believe this clarity of thinking, construct and execution is in itself a source of advantage as we are absolutely clear in how we run our business. The delivery of Strang's purpose is achieved through a clear business model. We have a business model that offers modern, personal, easy banking through omnichannel customer journeys, which are digitally led with strategically positioned physical locations with simple, transparent products and features at competitive prices with easy, straightforward, hence when processes. In terms of our brand promise, you can see from this slide that we're seeing positive trends in terms of both customer base and activity metrics. The automotive score, the degree to which our existing customers recommend us to potential customers, is joined 1st in the market at December 'nineteen. Customer commitment, tracking the preferred choice for a customer's main banking relationship, remains within the top 2 in the market. We are making good progress in building a valuable franchise whilst respecting that we, like others, have a way to go before we build the trust and respect needed for a fully functioning banking market. In 2019, we continue to invest in all our channels: branch network, voice and digital. If first we talk about the digital journey, we continue to improve what digital offer to allow customers who want to do more business with us digitally to do so. We're making significant progress in this regard. In 2019, for example, the bank recorded more than 80,000,000 successful customer logins through the app and desktop. More than 360,000 active customers used our app, up 44% on full year 'eighteen, with over 35,000 personal loans being applied for online. The banking app allowed circa 130,000 travel notes to be added to customer accounts and more than 200,000 knowledge based and automated web chat service responses were provided, thereby reducing inbound and outbound call volumes in the Open24 sales and service center. As mentioned previously, in August 2019, the bank launched the credit card application process end to end online. Since launch, we have received more than 10,000 credit card applications. And again, as mentioned earlier, we have further enhancements in the pipeline. For example, we are planning to launch both the current accounts and overdraft end to end application in 2020. In terms of physical locations, we want our branches to be economically profitable, attractive and state of the art. We want to build locations that are second to none to facilitate conversations about real customer needs. Indeed, we find many customer journeys start and maybe finish online, but that the face to face element remains an integral part of the banking relationship. What is changing is the role of the branch and branch staff, not the need for the branch. In simple terms, we will continue to invest in the branch network as long as the economics of doing so remain viable. For example, in February 'nineteen, we opened the 1st autocast location in Omni Shopping Centre. This tech is the so called Connect format with enhanced digital capabilities and an operating model that educates our customers on all channel options. This format has proven really successful today. For example, 100% of cash transactions have been automated. All customer service requests have been completed by the most efficient channel such as through online end to end term loans or credit cards. We open 50 hours versus the standard 35 hours over a 6 day period, Monday to Saturday. And customer service advisers are freed up to support customers and advise them on their financial needs. We've also improved our offering to intermediaries, which remain a very important part of the market. In the first half of twenty nineteen, Phase 1 of the mortgage broker portal was launched, which allows intermediaries to track various mortgage applications to pay out milestones. This is a differentiating factor and one that strengthens further our relationship with intermediaries. I'd like to thank our Intermediary partners publicly for continuing to support I won't summarize progress against all the strategic priorities at the risk of repeating myself. However, I can say with confidence that the foundations are strong. If you allow me, let me comment on those priorities which I haven't referenced earlier. Advanced simplification and efficiencies. Together with enhancing IT infrastructure, we are simplifying processes all the time as a means of driving out sustainable cost efficiencies. For example, with the introduction of robotic process automation. We have committed the investment in the business, technology and equally and maybe more importantly, culture will be paid for within the managed cost envelope. Compared to fair customer outcomes. In 2019, we established a product assurance function as part of building an organizational culture that is focused on rebuilding trust with customers as a means of delivering profitable growth. We have improved our focus on customer complaints management, including the implementation of a new complaint management framework. Embedded an inclusive high performance culture. The bank has been on a culture evolution journey for the last number of years. This has included a dedicated organizational culture program which is now bearing fruit. The bank is also actively involved in improving the culture across the Irish Banking Industry as a member of the Irish Banking Culture Board. We are absolutely focused on rebuilding trust and improving our culture for the better of all our stakeholders. As part of the culture improvement, there are a number of interesting data points. The Bank's Every Voice Count survey results showed that we have increased the employee engagement score by 2% to 83%, which compares strongly against industry standards. In 2019, we have developed further the bank's diversity and inclusion strategy. We are committed to creating a professional environment in which our employees feel valued, included and empowered to succeed. The bank is a member of the 30 Percent Club, committed to gender balance at all levels of the organization. In addition, the bank continued its participation in FFFS, supporting gender balance at the senior level. The bank is happy and indeed proud to say that we have seen a 6% increase in senior in women in senior leadership positions since 2017 with more work to be done in this overall area. To support the delivery of diversity and inclusion, the Bank has led a number of employee resource groups whose aim is to enable employees to join together based on shared characteristics of the life experiences. For example, PRISM, the LGBTQ plus network SEAM, an empowerment engagement network focused on achieving gender balance and LIFE, a work home balance and support network. Indeed, we delivered today's results only by having a really talented and committed workforce to whom I offer my sincere thanks. In this regard and recognizing the reward constraints under which we operate, our commitment is to give every member of the PTSB team the chance to be the very best that they can be. We're very proud of the opportunities for personal and professional development that we offer. Indeed, perhaps the most rewarding part of my role is seeing how so many of the PTSB team have developed into really talented banking professionals. Long may that continue. All in all, it's been a productive year. We're in a good place, recognizing both the industry and P2P specific headwinds and the challenges that dynamic change will always bring. Industry headwinds are well known and would include, for example, the lower for longer interest rate environment, which challenges our ability to generate sustainable levels of net interest income, high RWA intensity compared to European peers and regulatory requirements in terms of non performing loans and how we provision for such assets over time. The PTCB specific headwinds include, for example, a relatively small value creating asset base, a competitive pricing dynamic for both front and backward mortgages a relatively small addressable cost base a stock of NPLs that require asset management and the need to complete the customer engagement program in respect of interest rate and mean mortgages against the backdrop of pension regulations. On a more positive note, the bank has managed to increase its share of the mortgage market while increasing its NIM. Furthermore, we've managed to increase the fully loaded common equity Tier 1 ratio. Accordingly, I assert that it is not unrealistic to imagine that the challenges facing the bank will dissipate over time. The construction sector is growing, and it appears that the demand for office block and hotels has been largely met. I assert it's likely, therefore, that builders will focus more on apartment and housing construction in the future. The steady state housing demand is estimated at 35000 to 40000 units annually. However, the sector also has to respond to cumulative undersupply over the last 6 years. Plus, I think it's likely that construction output will continue to increase the next 5 years. And if this level of output could be sustained for 10 years or more, that will deal with the demand overhang, and it will also add to secondhand home activity, which I think could generate a much higher level of mortgage demand for which we are ready to compete. As the outstanding balance of trucker mortgages declines, the associated benefits in mortgages reduces, of course. In consequence, the prepayment rate I think is likely to increase towards more normal levels as mortgages move to properties more suited to their stage of life. These prepaid mortgages can be replaced with a different quality of asset. In that regard then, the excess HQLA can be liquidated and replaced with profitable mortgages. I think we should see the LDR rise and the LDR decline, all of which are positive contributors to the bank. I think over time, it's possible to imagine that the probability of default models will recalibrate to recognize the impact of the more conservative underwriting in recent years. If this reduction in risk is reflected in lower risk weightings, it will reduce the level of capital necessary to support the book. Since the bank's fully loaded leverage ratio is circa 8%, we should be in a position to generate better returns. So I would argue that whilst the current price to book ratio of 20% is a clear demonstration that our owners currently hold out little hope of growth or dividends in the short term, we know that intrinsic value and market value are disconnected. In my opinion, therefore, whilst there are many challenges, there are reasonable grounds for total shareholder return optimism if the economy holds steady. In addition, a few statements of fact. First, this bank had no right to survive, no clear future or severe challenges to overcome. 2nd, in response, this bank is innovative, resilient and full of really talented people. So third, this bank will continue to compete hard and will generate returns for its shareholders. As such, I am confident we will continue to exceed expectations within what we can control. We're well positioned for growth supported by a strong Irish economy. We continue to build our digital capabilities. We have solid funding. We have a robust liquidity position. We have a CET1 and total capital base that remains above minimum regulatory and management requirements. We reduced NPLs by 80% in 2 years. We have a higher quality of assets. We have strong succession plans in place for all key roles. We have a culture that is evolving for the better of our customers. And finally and most importantly, we have a fundamental belief that the market value of this enterprise does not represent its intrinsic value. We believe the disconnect is material. We believe we have the organic strategy to close the gap. We believe we are creating real option value for our owners, and we believe we're in investable position. So with that, I will now hand you over to Eamon. Thank you for listening to me. So thank you, Jeremy. Good morning, everyone. I'll discuss the financial performance in detail. But before this, I'll turn to Slide 12. The Irish economy is forecast to grow at 5.5% in 2020, and it continues to be one of the fastest growing economies in Europe. Economic fundamentals underpinning growth are very strong. Consumer spending and employment continues to grow at around 3%, which is a positive. And a key highlight is the labor market, with employment levels growing by around 3%, this brings the unemployment rate to an estimated 4.4%, which is the lowest since February 2,005. When you look at the housing market, the picture is also quite positive. The mortgage market having grown to €9,600,000,000 in 2019 is expected to increase by 11% to over €10,700,000,000 in 2020. And while as outlined by Jeremy, the market housing market has continued to grow at a pace, which has been subdued for both new and secondhand properties. We believe that the future is brighter in this regard. The increased political certainty around Brexit is welcomed across the business community. We've undertaken steps to mitigate the risks arising from Brexit, and we will continue to monitor developments in the coming months as the U. K. Future trade relationship with the EU becomes more apparent. Let me now turn to Slide 13, which is the income statement. The key message I want to convey today is that we continue to rebuild the bank's underlying profitability. And indeed, this is the 3rd year in which the bank has made a profit. We have reported a profit after tax of $42,000,000 which has increased from $3,000,000 year on year. A key number you need to look at here is the profit before exceptional items and tax, which is $74,000,000 dollars And this has decreased by 23 percent or $20,000,000 year on year. However, any comparison with 2018 should take into account the significant deleveraging that we've executed with regard to our NPL position and the smaller but more secure balance sheet that we now have. Net interest income has reduced by 6%, and we will look at this in more detail on the next slide. Fees and commission income at €37,000,000 represents around 9% of total income and is 5% or $2,000,000 below the prior year, but this is actually due to the change in how we charge overdraft fees with our customers. So it's actually led to a much better customer outcome in that regard. Net other income of £21,000,000 primarily related to the gains on the disposal of properties in possession, together with sudden movements on treasury instruments. The prior year amounted $24,000,000 related to one off gains from the sale of treasury assets and the closure of some derivative positions. Operating expenses have reduced by 1%, and I will outline the makeup of this in a later slide. The impairment charge of $10,000,000 reflects the underlying loan book, which is performing well, the stability of that portfolio and the current macroeconomic environment, which is quite strong. Exceptional items in 2019 related to the restructuring and other costs of £13,000,000 NPL deleveraging costs, which represented £16,000,000 and a £3,000,000 P and L impact from the tracker mortgage examination fine. And as Jeremy has outlined, we paid a fine of £21,000,000 during 2019, but we have provided for this in prior years, and this led to a net £3,000,000 net charge in the P and L. So now let me turn to Slide 14, which covers net interest income and net interest margin. Net interest income reduced by 6%, and this is actually due to lower income from NPLs, which equated to £36,000,000 in lower interest income and lower income from treasury assets, which continue to mature from higher rates and mature onto lower rates, and that totals a reduction of 18,000,000 dollars But we offset this by lower funding costs and also increasing the interest income from a performing loan book. Net lending income, which we can occupy as performing loan book income less deposit costs, grew by 4% versus 2018. Our net interest margin was 180 basis points, which is 2 basis points higher than the end of than 2018 and was in line with expectations. We do expect the 2020 net interest margin to be slightly lower, but then we see some increase as we head into 2021. The asset yield was 2.1%, and this is a 4 basis points reduction when you compare it to 2018. And this, again, is primarily as a result of the maturity maturing higher yielding legacy treasury assets, together with the provision of reduced fixed rate mortgage products to customers, and I'll deal with that in a later slide. We continue to actively manage our cost of funds with the full year cost of 30 basis points, which is a 7 basis points reduction versus 2018. And this was achieved through a range of funding initiatives, including retail, corporate and institutional deposit rate management. It should be noted here that we issued our inaugural NREL compliant $300,000,000 secure senior unsecured bond. We issued this at a yield of mid swaps plus 2.55 basis points, and this represented a 2.15 percent coupon to investors. We will issue additional MREL bonds in 2020, and this is on the basis of a revised charter requirement, which is now reduced from what was an estimate of £1,000,000,000 to now £800,000,000 And we will issue the remaining balance during 2020. Let's now turn to our loan book on Slide 15. The total performing loan book was $15,200,000,000 at the end of June. And as Jeremy has mentioned, it is now at 15,300,000,000 dollars The primary driver of this growth is in the performing mortgage home loan book, where new business has outpaced the rate of repayments, and this is the first time in over a decade. The performing mortgage book totaled GBP 14,900,000,000 with an average yield of 2.35%, and this has increased by 1 basis point versus 2018. You can see from the top right hand side of the slide that the full year average yield of new mortgage lending was 2.97%, and this was a reduction of 17 basis points versus the prior year. This reduction is in line with market trends and is in line with our aim for competitive order while maintaining price discipline with regard to our new business. When we break down the mortgage book, we see that performing home loan mortgage book is moving very favorably with a 3% growth year on year from £11,300,000,000 to £11,700,000,000 and the home loan mortgage book now represents 78% of the total mortgage book, and that's an increase from 76% in 2018. The buy to land loan book has reduced by 8%, and that's a reduction of around £200,000,000 to £3,200,000,000 and it reflects around 22% of our mortgage portfolio. In total, we have new mortgage lending of around $1,500,000,000 for the year. And this increased 13% year on year. As mentioned by Jeremy, we've grown our mortgage market share to 15.5% with very positive trends in the second half of the year, and we see these trends moving and remaining into 2020. If you take a closer look at the performing mortgage book, and as I mentioned, that's £14,900,000,000 and this is on the bottom left hand side of the slide. It's made up of $8,100,000,000 of tracker mortgages and AE was 1.3%. The tracker book is now 56% of the mortgage book of the performing mortgage book, and that has reduced from 60% a year ago. With $3,400,000,000 of fixed rate mortgages, these have increased by 26% year on year, and they're yielding 3.2%. We have £1,800,000,000 of managed variable rate loans, and these have reduced by around 20% year on year, and they're yielding 3.9%. And we have £1,500,000,000 of standard variable rate loans, which have, again, reduced by around 20% in the year, and they yield over 4%. So you can see movement in standard variable and the managed variable rates into fixed rates. So customers are taking decisions with regard to moving to different rate propositions, which is as we expect and as we want by way of customer opportunity and movement. I should also mention here, and this is something we've mentioned in previous presentations, that 17% of the performing mortgage book is on interest only and the vast majority of this is related to buy to let exposures. So let me now turn to operating expenses. Our total operating expenses are reduced by 1%. If you exclude depreciation, amortization and regulatory charges, and we refer to this as our addressable cost base, we have a cost base of $257,000,000 in 2019, and this has decreased by $3,000,000 or 1 percent year on year, and it's reduced by $7,000,000 or 3% versus 2017. SaaS cost of $147,000,000 was reduced by a net 1%. And when you include wage inflation, which is around 3%, our actual underlying payroll saving is in the region of 4% in the year. And you could actually carry that through to the previous year as well because we have been paying wage inflation for the last number of years based on performance. So while we're achieving this because we have had a voluntary severance schemes and we've also been ongoing restructuring with regard to mix and grade of staff within the bank, and that will be an ongoing feature as we move forward. Non staff costs are $110,000,000 and these are reduced by 2% versus 'eighteen and 7% versus 2017, with ongoing savings initiatives across discretionary cross lines, which allows us to reinvest into the business. If I turn to the right hand side, particularly the top right hand side of the page, of the slide, you'll see that our underlying cost base, addressable cost base has been reducing. But within this, we've been able to extract efficiency savings around $20,000,000 per annum over the last 3 years. And this represents a saving around 8% to 10% of our addressable cost base. But we've had to use these savings in order to pay wages, to increase, I should say, salaries, to invest in the business, both for business and sorry, monetary and business initiatives and also some increases related to inflation. And I'll deal with some of that aspect on the next slide. The material 3 year investment program in technology, which we refer to as Project Forte, commenced in 2019 and is now 1 year into its completion. As this project delivers, we will see further efficiencies in our addressable cost base, which will be offset by an increase in depreciation over the medium term. We will continue our rigorous focus on cost management, and our approach, as evidenced over the last 3 years, is to fund investment in business through sustainable operational cost efficiencies. On a like for like basis, the underlying cost income ratio, excluding regulatory costs, was 68%, which is 4% higher versus last year. However, this is as a result of the top line reducing. But also just note one thing on the top right hand side. You'll see that as a bank, we pay a bank levy, which is in the range of 24,000,000 If you compare our actual reported profit of £42,000,000 we're effectively paying £24,000,000 of that in bank levy, which actually has a significant impact on our return given our size. But it's important that we note that as well on that slide. If I now turn to Slide 17. This is a key slide because it actually shows and confirms what Jeremy has been saying by way of the switch in where the business has come from and where it's going. If you look over the last 3 years, our average investment spend has been in the region of $25,000,000,000 per annum. But half of this has been on regulatory and mandatory programs, the likes of GDPR, PSG II, IFRS 9, capital modeling, anti money laundering improvements and things of that nature. And the other half has been on commercial technology, most importantly, developing our people where we evolve our culture and we look at diversity inclusion initiatives and items that Jeremy has also mentioned. When we look over the next 4 years, which we classify as the medium term, the average investment spend will be at a similar level, we believe around $27,000,000 per annum, but the nature of breakdown will change significantly. Over 90% now will be on business, technology and people. And this, as I've outlined here on the slide, will be around improving customer engagement platforms, renovating our legacy systems, creating new digital capabilities through the Fortis platform, launching a competitive SME product and service proposition, keeping pace with cybersecurity developments and as I mentioned, most importantly, developing our human resource capability, which we believe is a secret sauce of permanent GSB. And only 8% will be invested in regulatory and managed to spend. So this is a reduction of 85% versus the last 3 years and shows a significant shift in where the business is going. Just to note here, the average spend on investment, we estimate that 70% of it is CapEx and 30% is in OpEx. If we move forward to the NPL situation. So it's been another positive year in terms of reducing a non performing loan balance, which have reduced from £1,700,000,000 at the end of last year to just over £1,000,000,000 representing a 38% reduction. And as we've communicated before, this was as a result of executing Draught 2, which is the 2nd NPL sale. And this transaction closed in early February, so with regard to our involvement in the transaction, it has now ceased. And organic cures of around 100,000,000 dollars Looking forward, we remain committed to meeting the mid single frigid NPL ratio. And with an estimated €250,000,000 of our NPL stack on a path of cure over the next 12 to 18 months, we're on this level is in sight. As mentioned by Jeremy, we will consider all options in connection with reducing the balance. These include loan sales, securitizations, mortgage to rent solutions and other social solutions. But OREIM, which we've proven already through previous deals, it's reduced the balance and to protect our capital position, and I think the proof is in what we've achieved in that regard. Our last quality level provision cover remains at an appropriate level. And we have an expected credit loss provision of $300,000,000 on Stage 3 nonperforming assets, which represents a 32% coverage ratio on our NPLs. We should also note here that we have over $400,000,000 of expected credit loss coverage on our Stage II exposures, and this includes the interest only exposure that we've mentioned and noted already this morning and in the previous presentations. I should note here and reemphasize that the guidance from the regulator under the threat process is that secured NPLs, which are over 7 years old, must have a 40% coverage level by the end of 2020, and that coverage level must increase to 100% on a linear basis between 2020 2026. But at the level of coverage we have in our Stage III assets, we believe that, that is not an issue or anything that's something we have to worry about at this moment. Let me just turn to Properties and Presentation. Jeremy has dealt with this in some detail, but his slide actually shows you the progress that we've made. So at the end of 2017, we had just under 1800 properties in our possession. And you might recall that they were primarily on a voluntary basis, where we offered Bargelet customers the ability to hand back the keys to the bank on the basis of their particular situation. In the last few years, we took on over 700 properties, some of it most of those in a similar fashion. We sold just under 2,100 properties in 2018 2019. And I must stress here, they were individual sales. There was no bulk sale within that. These were actual individual sales in the market through many different means. This has left a stock of properties at the end of December at around 400. Indeed, we sold almost 60 in January alone. So continued progress with regard to reducing those the property numbers ensuring that those properties return to the market in a natural way. As stated before, we do plan to exit the majority of these properties over the next 12 months. Let me turn to the funding and liquidity position. Our funding liquidity position remains very strong. Our strategy is to continue to fund our balance sheet by customer deposits while keeping other funding lines open and accessible. And indeed, that's exactly where we are at this moment. All funding and liquidity metrics are strong and are well above the legacy requirements. And if you look at the table on the right hand side of the slide, and this is out at the end of December, banks that liquidity funding positions are well above other comparable banks. And indeed, when we look at the European average in this regard, the bank ranges between 17% 26% higher across the 4 key measures of liquidity and funding. And this clearly highlights the journey that the bank has made and indeed the level of safety in our funding and liquidity position. I should mention here that we're now we have over 95% of our funding from cost and deposits, with retail balances remaining stable. One other point that I should mention is, again, as Jeremy has mentioned, it's important by way of our MREL issuance, which we believe is actually very manageable at this moment, is that Moody's S and P and CBRS have upgraded the bank's credit rating and for the first time in 11 years have turned the bank to investment grade. So that again is outside assurance with regard to how the bank has progressed and where we are at this moment. So if we just turn to Slide 21, business capital, capital slide. Our registry capital ratios remain comfortably above the registry minimum requirements. Our pro form a CET1 ratio on a fully loaded basis is 15%, and that's increased by 100 basis points versus the pro form a position at the end of 2018, which was 14%. The reason why we have pro form a is that the 2 glass transactions have both crossed the year end at the end of 'eighteen and the end of 'nineteen, but the 15% is the actual pro form a number at the end of 'nineteen. The CET1 ratio on a transitional basis is 18.1%, and that's increased by 110 basis points versus the end of December level. This improvement is primarily attributable to organic profit generation. The risk weighting on the Glendly V note and obviously the benefits of deleveraging the NPL portfolio. The CET1 minuteimum regulatory transition requirement is still set at 11.45%. It had increased during 2019, as outlined at the half year results, due to the capital conservation buffer, which is now 62.5 basis points and the countercyclical capital buffer, which is now 100 basis points and was introduced in July at 100 basis points. Our management's 321 target on a medium term basis, and I might recall that we view that medium term as over 4 years, is at a level of 13%. I'd mention here on the bottom left as well, and Jeremy referred to it, the Tier 1 transitional leverage ratio has increased from 8% in 2017 to 9.1% at the end of 'nineteen, which again highlights the progress that's been made with regard to the risk profile of the bank. And I think it's interesting for you if you have to compare that to an equivalent U. K. Mortgage operator, what their leverage ratio is. It would highlight that we're twice as secure as an equivalent U. K. Mortgage lender, who typically operate around 4% or 5% in this area. So let's just turn to the outlook for 2020. So we expect lending growth across our we expect new lending growth across our core lending of sinking will be lower, and this is a result of MTL deleveraging and the continuing maturity maturing higher yielding treasury assets, but they're now coming to an end in 2020. So that reduction will cease to happen after this year. As I mentioned, our NIM is expected to reduce slightly. We estimate around the high 170s. We expect to increase our non interest income, and we do not expect to make similar gains on the disposal of properties and possessions given the numbers that I've already outlined. On the efficiency side, operating expenses are expected to remain stable with possibly some reduction, but stable is a reasonable level to talk about now. NPLs will reduce further, and we will meet the MREL target set by the bank, which we believe will now be issued at a lower margin given the how that has performed in the market. Returns, we'll continue to maintain profitability and generate organic capital. Will continue our prudent approach on capital as we continue to manage our risk profile. And some of this relates to the legacy exposures, NPLs and interest only being an example. And Ouro we will or is expected to reduce, I should say, That's because of the top line headwinds that we have. But we see recovery in this return in 2021. So if we move forward to the 2019 outturn and some medium term outlook. So in summary, 2019 presents a picture where we grew our market share to 15.5%. Our net lending increased to 1,700,000,000 dollars Home loan mortgage book, which is our core performing book, grew by 3%. Our consumer lending volumes grew by 15% to 140,000,000 dollars Our NIM increased by 2 basis points to 180 basis points. Our net income stabilized with a better mix of net fee income in that regard. It represents 9% of total income, but we have ambitions to increase that over the coming medium term. Our total operating costs reduced. We've demonstrated that we've executed average annual savings in the region of around $20,000,000 from our addressable costs. And I stress it's our addressable cost base, it's the cost base that you need to look at when you see talk about the efficiency of this bank. And we've reinvested this back into the business. And our NPLs have reduced to $1,000,000,000 the lowest of any of the 5 banks in the Irish market to a level of just above 6%. We've increased our profit after exceptional items from $3,000,000 to 42,000,000 dollars as I mentioned, the 3rd year of profitability by the bank. The pro form a CET1 on a fully loaded basis increased by 100 basis points and the ROE was 3%. But what's more interesting is how we think about the outlook. And this is to put some numbers on what Jeremy's outline from earlier, which is the confidence we have in this business. We're looking to have a mortgage market share. And this is of what we believe will be a bigger a larger mortgage market between 16% 18%. We have an ambition to have new SME loan volumes of in excess of €250,000,000 per annum. We have an ambition to have consumer lending volumes in excess of $200,000,000 as well. You can see the growth we've had in that area. Some might say $200,000,000 slightly soft, but it's a reasonable target at this moment. We have an ambition of a NIM of over 190 basis points. Who knows, we can get over 2%. We've a serious ambition to have our net fee income well in excess of our 10% of total income as well. If we look at efficiency, we're looking to execute sustainable cost savings of around 10% of our addressable cost base. This would bring us to around, we believe, a 65% costincome ratio. Our NPLs will not, I suggest, be a feature of the bank when you look 3 to 4 years forward because they will naturally either cure or have different solutions. And we estimate our impairment charge will be somewhere around 20 basis points per annum. If we look at our returns, we expect and we forecast that a core equity Tier 1 fully loaded level of 13% is a reasonable target for this bank. But naturally, this level is subject to our ability to pay dividends and realign our capital stack, which, as you know, is currently restricted based on a dividend restriction. And we believe we can achieve, based on the current lower for longer interest rate environment, nor are we of around 6%, and that's based on 13% core equity Tier 1.11. So let me just say thank you for your attention. And let me just invite you to ask myself and Jeremy some questions, and we'll take them from the floor first and then move on to the phones. So thank you very much. Thanks very much, in particular, for the outlook side. Very helpful. And maybe if you could just start there and then maybe follow-up with a question on those performing interest only loans. And so firstly, just on the medium term outlook. And you mentioned the return on equity is 6% achievable, no for longer. So just to check that that's assuming no particular lift in terms of ECB based rates across the company. That's the first point. To highlight, Darren, actually, with our tracker book representing nearly 60% of our exposure, Any interest increases will be welcome in that regard by way of the return we've made because it would we're absolutely our top line will move at a faster pace if interest rates were moving upwards. Okay. And just moving from there on to the cost to income ratio of 65%. And just to clarify, is that excluding regulatory fees and levies? That includes regulatory fees and levies. It includes? Okay. Yes. And so when you talk about sustainable savings, 10%, that seems to be roughly about £25,000,000 Should we look at that as a kind of a gross saving? Or is it net of safe inflation over the coming few years? Well, we've demonstrated in the last 3 years our ability to extract savings and deal with staff inflation. And Our ambition is that it would include inflation that would happen over time. So it's a clear number. You should think of 2023 as such in that regard. When I classify medium term as 4 years, it's a landing point that we're talking about. Okay. And in terms of that cost to achieve that exceptional charges, should we expect significant exceptional charges over the few years ahead of that, should 2023? I would suggest as we continue to restructure, which we will, exceptional costs will continue to be a feature of our P and L. And most of our exceptional costs today have been in the area of deleveraging, whether it's CHL or other aspects, but it will move more into the area of actual restructuring of the business in due course. The answer is yes. Okay. And just moving from there on to that interest only query, how should we view the engagements with those customers? What should be the expected outcome? I appreciate it's an early stage. But in terms of what NII is associated with that book, capital intensity provisions, etcetera, at the moment? So that level of detail, I'm not prepared to go into this moment, just to give you a couple of points. And bifel that, these are primarily bifel that exposures. They have a higher level of capital intensity. And they are primarily assets that were originated or sorry, they're all assets that originated before the crisis, and they would predominantly have the tracker in that regard. And I highlighted earlier that the average yield on our tracker book, both home loan and buy to let, is yielding 1.3%. Just Amy Hughes in Goodby. Maybe just a few questions on my part. Maybe just kind of sticking with the targets, Eamon, just in relation to the kind of getting to the CET of 13% and you're currently at 15%. Just kind of trying to get the trajectory around your P2R is obviously quite high. Kind of what needs to be done in terms of getting that down? You've made significant progress the last year to see what hasn't budged. So just the implications in relation to that. Sorry, it's not the virus, I don't think. Then secondly, just in relation to your annual reduction as well from £1,000,000,000 to £800,000,000 just what was the move in parts kind of to get that number down a little bit? And then finally, just in relation to, I suppose, the success you've had or appears you've had in terms of drawdowns and at a higher market share than your applications, just kind of what's been the key driver in relation to that over the last 12 months or so? Okay. Do you want to take the dividend one? I'll take the dividend one. You? I'll do it. Okay. Good. So three questions. Yes. You're ready, I'll. Three questions. So on the dividend story, naturally, that is an interaction with the regulator by way of our interaction, and that is a private discussion, actually. So I'm not going to go into the detail of that. There's no doubt that the bank is emerging from the past, as outlined by Jeremy quite clearly by way of where it's come from, and there's clear signs of further year profitability, managing our cost base, growing our capital base. The income issues we have are primarily outside of control. They're maturing yields, they're lower for longer interest rates, and they're MREL issuance. These are things that are outside of control. But the key thing to talk about here is that as we get past those, they will be reflected on numbers and we will see some growth then in that regard. So with regard to that dividend interaction, as I say, it's an interaction with the regulator, and it's actually at their behest, not at our request as such. And with regards to the second question, remind me, Eamonn, I should have written it down. It's AMRO. Sorry, AMRO, yes. So we've estimated that we have around the 25% requirement. We have been interacting with the regulator and the regulatory authorities around that. We had estimated that it would be around $1,000,000,000 Naturally, our RWAs have been coming down because we've been deleveraging. And that has led to that approach with regard to the level of MREL. And indeed, that MREL is reviewed on a regular basis. It moves around depending on where balance sheets are. So it's just purely a feature of that. And your third question was on? Yes. So there's no doubt that we have been outperforming with regard to how we once we get an application in the door, how we and we get it to draw down. We believe we're best in class in metal cars. We believe our conversion rates are very high, and it's proven by way of that particular approach. You can see it in the numbers. So it's pure it's operating capability. It's being close to our customer, it's making it happen for them, time to yes, time to cash, all of those key simple things that are important to customers. And we believe we're best in class once we get the application into to convert it. And maybe just one follow-up just on the NIM guidance, the 190 plus kind of further out pretty punchy, which is good as potentially in the right direction. Is kind of circling back to the earlier point around the Life Led portfolio, but then internally, you've kind of alluded to maybe sort of tracker rate within the performance book. Would that be part and parcel, kind of combined with what appears to be quite strong SME annual flow rate of €250,000,000 potentially as well? Would there be kind of 2 big inputs in relation to getting to that €119,000,000 plus number or 190 number? Absolutely. So the there's no doubt that the drag in our NIM is related to our tracker book, and that's we all know what that means. But what's important to us is that we need to increase the mix of income lines that we have. We've been making progress on consumer lending. We believe there's an absolute position for us, a more relevant position in SME, primarily with much smaller customers in that area. But that relevance, we're in those communities already. It's about doing business with people in those communities. And the margin we'll in that business, we believe, will be attractive. And it will be incremental. It doesn't exist today. That income isn't there today. Therefore, it will be incremental to us. In fact, we're losing that income. We want to compete, gain and grow that income over the next 3, 4 years. Good morning. It's Richard Sheridan from Davy. Two questions, 16% to 18%, maybe a comment on your kind of current pricing propositions in the context of some of the changes we've seen more recently and how comfortable you are around that at the moment? And then secondly, maybe just a follow-up on the capital point. Obviously, there's a number of moving points. We talked about Pillar 2 there a moment ago, but some of the others around this is kind of risk buffer and maybe the broader change, the technical change in Pillar 2 as to how you thought about those when you think about the 13% in the medium term? Thank you. Okay. So I'll just I'll deal with the second one first. So the 13% does include the technical changes. Those technical changes are expected to be implemented in 2022. So when we talk about 13%, we're talking about 2023. I just want to our medium term is over 4 years. That's how we plan within the organization and that's how we forecast. So it includes the benefit of the technical changes when you look at a fully loaded core Tier 1 level. So you couldn't compare them like for like today. But we have demonstrated an ability, as I say, as I mentioned already, to generate our fully loaded corected Tier 1 from if you looked back 2, 3 years ago from an area from a position that could have been deemed to be quite weak, we've been able to do that. With regard to the first point, mortgage pricing, we've got to be competitive, right, in both front and back book. And as you'd expect, we keep pricing on a constant review. And indeed, we've made 3 rate cuts this year or sorry, over the last 12 months. And that's been new to announce today. But if we can make our offering more competitive, then you can see the level of outcome that we can create through the propositions, the service and most importantly our people. So we'll continue to aspire for that, but at the same time, we've got to get a balance right between the value that we give to the customers versus the value we have to get from customers in terms of making return for the taxpayers. So it's a dynamic market. It's competitive. We'll continue to evolve. We'll continue to innovate. I'm really confident in our ability to do good things here. And indeed, you can see we've grown market share. It's not like the market has been competitive in the last 12 or 24 months, it has. And indeed, if you look at our quarter 4 market share, we were up over 16%. So we've a strong proposition. Proposition, by the way, isn't going to price. We talked about service and conversion and getting cash to customers as they want. So there's something in that with regard to not just price, but the overall proposition. But we will remain competitive because we believe the relevance of this bank and the relevance of this plan is very clear now of where we've grown our market share in this area consistently, as Jeremy has mentioned, for 7 years. Thank you. Thank you. With regards to the phone, please. The first question we have today comes from the line of Alastair Ryan from Bank of America. Please go ahead. Yes. Thank you. Thank you. Good morning. So the ability to execute is very clear and your level of ambition also very clear. So I'm a bit frustrated myself to be asking detailed questions about changes in sort of your legacy book as it were. But just to dig through this interest only piece, I mean, it's clear you've from a balance sheet perspective anticipated this review, But given that fundamentally these are interest only products and if you go on to capital repayments, almost certain to result in a high level of problem assets, and then you've got an NPE target you've reiterated. One assumes you end up selling them. So I'm just trying to fill the income hits and whether there's any further P and L impact from moving these things from conservatively provisions to exited. And I'm sure it's not your favorite topic, but clearly it's potentially meaningful for the next 12 months P and L and then the sort of run rate size of the book that we're exiting the next 12 months into? Thank you. Okay. So just to clarify one point there, Alastair, is that we're not asking customers to pay capital interest. So it's not as if we're forcing customers on an interest only product onto a capital interest product. Now we're asking customers effectively 2 questions. You realize that you have a bullet repayment at the end of this mortgage. And secondly, can you tell us what your means are to satisfy the settlement of that mortgage. So it's quite a straightforward 2 questions. The first one, it's not really a question, it's more a note for customers. But the key thing here is that we're not asking typical to C and I. So therefore, it's not such a large jump in that regard. However, there's no doubt that, and Germany has referred to this, that if a customer does not have means in which they believe they can settle a debt in an 8 to 10 or 15 year period. From a registered perspective, that may be classified as a nonperforming loan even though the customer is up to date with all payments and is in line with the contract. So there's an element of we recognize that there has been a risk on this portfolio over a period of time. Indeed, If you wanted to refer to Page 30 of the pack, you'll see that on our Stage 2 assets, we have a provision coverage of €439,000,000 on Stage 2 assets. That's increased year on year by about £28,000,000 So the key thing there is that provision is primarily assigned to or thought about in regard to our interest only exposure. So we are, we believe, covered with regard to the potential outcome of this portfolio. There is a risk that some of that portfolio may be classified as NPL under regulatory requirements. And if it is, we will have to deal with it in a way that we have managed over NPL exposures. I must highlight there, these are not in the 7 year bracket. These would be new NPLs existing as and when the information arises. And I believe that we are well provisioned in that regard. With regards to the P and L income, primarily trackers, and as I mentioned already, our average tracker yield is around 1.3%. So based on, if you wanted to do the numbers, a 17% exposure at a 1.3% average margin. Not all of them indeed as I say, not all of them we believe will have an issue with regard to not being able to meet what is quite a low hurdle by the repayment question. And therefore, the issue is not as material as one would think given that level of coverage and the exposure. However, it's important that we clearly bring this to your attention. And if you refer back to the previous presentations, we have been noting that the level of interest only repayments on the balance sheet are at this around the 17% level. So just to sum up, it's manageable, It's well positioned. It's part of the normal regulatory engagement and engagement with customers. It makes perfect sense that we will engage with customers in this regard, and we'll see how it plays out over the next 6 to 12 months. Honestly, from my perspective, this is a couple of principles that are at play, really. 1, I always want the bank to be transparent with its owners, And so it's important that we give you this information. And secondly, what we're trying to do here, I think, is to get a better quality income and profit stream of a better quality asset pool. And that gives us the foundation to be confident in terms of the outlook which AIM has given. So we'll fix it and we'll therefore have an even safer and sounder bank. And I'm absolutely confident about that. And to be honest, that's why we're always there on the side of transparency. Thank you. But if I could just come back a little bit, so it's not about you, it's about them in a way that these are loans that have been paying you for 13 years. Presumably, the idea in the first place was people bought these properties to rent them out. The loans were interested because they weren't intended to be repaid. The value of the property is a repayment and the gap is opened up between rents, which are up 30% and property prices, which is still down 20%. Is the difference between a loan that you're very comfortable with and one that the regulator in effect is asking you to sell. I'm just trying to scale out, is it 17% of your book, less than 17% of your income because, as you say, predominantly track away. It's just quite a big delta if it's something that's on the income. Clear and helpful on the provisioning. But just on the income, I'm just struggling to to scale what proportion of these loans because in essence, if you can write to these people, they write back and say, look, I'm going to repay you by selling the property and that's fine, then it's presumably a relatively small percentage of these loans. If selling the property isn't the acceptable answer, then it's a bigger percentage. And I'll just I can't scale that, Michel. So just we're not asking customers to sell or do anything. All we're asking them to do is to confirm to us how they will repay the loan due course. And primarily, this is in an area where either a customer is in negative equity or as a customer is has an LTV of around of about 70%. So it's not an enormous ask to these customers for them to think about other assets that they have or other items that they can contribute or can highlight to us that they will be able to contribute in due course. But primarily what we're saying to the customer, you recognize the debt and you've figured out how you're going to repay it. And in some cases, if you take customers who have maybe higher negative LTV, they may not have the means or the age profile in order to do that. And therefore, we'll have to deal with it in such an extent. So we're not asking anyone to sell anything. Indeed, when we receive a credible capital plan, those loans remain performing and they continue to pay as is. And then we will have over every number of years a regular checkup with those customers with regard to how things are moving forward, which is normal credit activity. But there's no doubt that there will be some customers who will not be able to meet the hurdle of a credible capital plan. And in that regard, we will have to think about them by way of NPL classification. So I we're not asking customers to leave us or anything in that regard. We're just asking them to confirm that they can be paid the test. Okay. And I just wonder whether you'd just be kind enough to give us a pass based on the RMS. So the program is at an early stage of maturity. Further detail will be provided at H1 2020. So at a principal level, yes, we do have this asset pool. Yes, we have started the customer engagement program. As Eamon has outlined, the key here is about a credible capital repayment plan. It genuinely is at an early stage of maturity. So would you mind if we just acknowledge the fact that, yes, there is an underlying fault we have to manage and yes, there is an underlying risk. But I would ask that we would just be allowed some time and space to run the program and that we'll provide further detail at H1 2020. Would that be okay? Yes. That's clear. Understood. Thank you. Thank you very much. Okay. So I think that's no further questions. Are there any further questions from the floor? Otherwise, thank you for listening to us both, and we'll close the results presentation.